Palm (PALM) 10/22/09 PriceWatch Alert With $9.98 Break Even

Posted: Thursday, October 22, 2009 8:31 AM EDT
By: Market Intelligence Center Staff

Palm (NasdaqNM: PALM) closed yesterday at $15.48. So far the stock has hit a 52-week low of $1.14 and 52-week high of $18.09. Palm stock has been showing support around 15.18 and resistance in the 16.02 range. Technical indicators for the stock are Bullish and S&P gives PALM a very weak 1 STAR (out of 5) strong sell rating. PALM appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 11 covered call (UPY EK) for a net debit in the $9.98 area. That is also the break even stock price for this trade. This covered call has a 212 day duration, provides 35.53% downside protection and a 10.22% assigned return rate for a 17.60% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the PALM Jan '11 2.50 Call (ZTO AZ) and selling the May '10 11 call (UPY EK) for a $7.85 debit. The trade has a 212 day life and would provide 33.14% downside protection and an 8.28% assigned return rate for a 14.00% annualized return rate (for comparison purposes only). Palm does not pay dividends at this time. [THA-Seven Summits Research]